UK property sales fell by around a third last month and were flat on a monthly basis, new figures show.
HMRC’s latest property transaction report estimates that there were 103,930 UK sales on a seasonally adjusted basis during September, down 37% annually and flat compared with August.
The non-adjusted estimate is 112,370, down 32% annually and flat on a month before.
It is, however, a higher number of sales compared with the same month of many of the pre-pandemic years including 2016, 2017, 2018 and 2019.
For example, there were 99,570 sales in 2019 on a non-seasonally adjusted basis or 100,030 on a seasonally-adjusted figure.
Chairman, said: “Nothing better reflects the health of the housing market than the number and pace of transactions rather than more volatile prices.
“Interestingly, the slightly historic nature of these latest figures reflects how activity was beginning to stall even before the traumatic events at the end of September.
“After the mini-Budget it felt like someone had turned the phones off in our offices from which we are only slowly recovering as uncertainty still lingers.
“Nevertheless, there are many determined to take advantage of more advantageous lending terms before rates climb even higher.”
Jean Jameson, chief sales officer at Foxtons, added: “Everyone is keeping a close eye on the UK housing market, as we’ve yet to see the full effect of government’s roll back on the mini budget and economic shifts on house prices.
“The HMRC report saw less residential transactions in September 2022 versus 2021 and no growth from August 2022.
“Foxtons, however, have seen an increase in market transactions in September. Historically, premier agencies have proved useful when transaction volumes have slowed, because we help customers successfully navigate a more complex market.
“So, transaction growth may take longer to slow. Affordability issues may have a knock-on effect on the number of people that decide to transact in the coming months, however, we haven’t seen this impact market transactions yet.”
House Prices To Drop 20% As Early As Next Year, Bank Warns
Lloyds Banking Group is bracing for house prices to slump by as much as a fifth next year as it warned of a hit to mortgage lending amid mounting interest rates.
The FTSE 100 lender said it expects the UK economy to shrink at least 1% next year, and by as much as 4.5% in a worst-case scenario.
Profits at Lloyds fell to £1.5bn during the three months to the end of September, down more than a quarter from a year earlier and well below analyst forecasts of £1.8bn.
Lloyds said that higher interest rates and the bleak outlook for the economy is likely to lead to a slowdown in mortgage lending over the next year.
Its base case scenario assumes a 7.9% drop in house prices, but at worst they could crash by almost 18%. Commercial property prices are forecast to drop by at least 15%, with a slump of 36% predicted in the worst case.
Charlie Nunn, chief executive of Lloyds, said: “The current environment is concerning for many people, and we are committed to maintaining support for our customers."
Lloyds has been overly pessimistic before. It previously forecast that house prices would fall by as much as 30.2% between 2020 and 2022, with even its base case model predicting a 0.7% decrease. Instead, they soared to record levels after the pandemic hit, as lockdowns sparked a rush among buyers for more space and properties in rural locations.
The fall in quarterly profits was partly driven by a decision to set aside more money to cover an anticipated surge in defaults on loans and mortgages. It made provisions of £668m to guard against this risk of unpaid debts, up from £119m last year.
Lloyds' share price fell by as much as 4% to 40.8p following the update.
William Chalmers, chief financial officer of Lloyds, said the house price boom during the pandemic had made it more difficult for prospective buyers to get on the ladder or move homes.
He said: “We're likely to see a bit of a slowdown in mortgage lending over the course of the next twelve months in response to slightly higher interest rates and the slightly tougher macro-economic environment.
“It is reasonable to expect the mortgage market to slow down during that time period. We will of course see a number of customers coming up for refinancing of their mortgage product, and we'll be making a full offering to those customers and making sure that customers are in as good a position as possible to afford that going forward.”
Traders are betting on an 0.75 percentage point increase in interest rates when the Bank of England’s Monetary Policy Committee meets on Thursday next week. Threadneedle Street has already raised rates from 0.25% to 2.25% this year in an attempt to tame rampant inflation.
Mr Chalmers said the bank will be passing about half of rising rates through to savings customers, in line with its competitors.
Lloyds posted a 19% rise in net interest income - the difference between the interest a bank charges on loans and what it pays to consumers for deposits - to £3.4bn for the quarter but said this was offset by one-off charges.
How Confident Is The Property Market?
Prospective buyers likely to ‘wait and see’ amid economic uncertainty.
Changes in the mortgage market will likely have an impact on consumer confidence in the housing market, an industry expert has warned.
Borrowers will inevitably step back to reconsider their approach and take stock, suggested David Hollingworth, associate director of L&C Mortgages. Many would be waiting for a potential property price drop in the near future, he said.
“Those that are already in the process of securing a property may be more likely to continue given that they would have little chance of securing mortgage rates on par with their current offer now that rates have escalated,” said Hollingsworth (pictured).
“Those that do not need to move are much more likely to feel that a wait and see approach would be more appropriate to understand how things pan out before committing themselves to a house move.”
Heightened Volatility
Hollingworth explained that the recent volatility in the mortgage market was heightened by the unfavourable reception to the mini budget, that saw rates rising.
He noted that inflationary pressure makes further increases likely, but the undoing of the changes within the mini budget could bring some stability to the market and improve the funding costs for lenders.
“I expect it would take time for that to feed through, but it could help slow the increases that have come at such pace and fanned the anxiety of households,” he said.
To what extent that anxiety dampens the level of demand in the market and how many forced sellers put property on the market remains uncertain. But Hollingsworth suggested both factors could contribute significantly to a reduction in a fall in property prices. This, too, might potentially further dent confidence.
“Much will depend on the stability that the new chancellor can bring, but more stability may at least help consumers understand the outlook better, which could in turn stave off a crash in prices,” he said.
Most Affected
According to Hollingworth, first-time buyers are most likely to steer clear of the market, for now. He noted that they may have to recalibrate their search altogether as they try to understand the ramifications of mortgage payments and therefore their affordability.
“Some may be hoping that there could be positive news if prices were to drop back,” he said. “However, the retained improvement to stamp duty relief is highly unlikely to offset the concern that higher interest rates and spiking living costs brings.”
Meanwhile, Nick Morrey, technical director of mortgage broker Coreco outlined that more support was particularly needed for first-time buyers during this period of uncertainty.
“Helping first-time buyers with more schemes like Help to Buy and organising other schemes that do not require the property to be new-build could certainly lessen the impact of a housing crash,” he said.
Crash or Correction
Morrey explained that he did not believe there would be a property price crash unless unemployment rocketed, although he noted that was possible. If house prices were to fall, he said, it would be considered more of a correction, given the increases in the last three years.
“The reason I do not expect the larger predictions to actually happen is that if prices are reported to be falling as much as 5% then people will likely stop selling and supply will reduce even further, which will likely support prices overall,” he stated. “What is more likely is transaction levels reducing as consumer uncertainty prevents big ticket financial decisions.”
Morrey predicted a fall of between 5% and 10%, if the housing market was to decline, rather than the 15% to 20% that he noted some experts have been suggesting.
He also explained that if the housing bubble was to burst, then a bounce back usually took two to three years from the start of a fall to a recovery being well underway.